Commentary COBRA Without End, Amen

I normally try to avoid the word “crisis” in discussing health care issues. People have been talking about crises in health care since the 1920s, and somehow we always manage to muddle through.

But there is something looming in the very near future that could become a crisis for your company. This is the retirement of the early baby boomers, scheduled to begin in 2011.

When baby boomers turn 65, they will go on Medicare. Actually, they are required to go on Medicare or lose their Social Security benefits, a policy that ensures that virtually everyone who turns 65 will enroll in Medicare.

In 2010, there will be more than 17 million people in the U.S. between the ages 60 and 64. That is a 7 million increase since 2000. And the next cohort (age 55 to 59) will be even bigger—20 million.

In the decade beginning in 2011, some 37 million people will enter the Medicare program. This will almost double the number—42.4 million—who were in Medicare as of 2005.

So, sure this is a problem for taxpayers and the government. But it is also a problem for employers. A large number of these future Medicare enrollees are married to younger spouses. Men, especially, tend to marry younger partners. When these men go on Medicare, they will drop their existing group coverage. The spouses they have been covering will also lose this group coverage.

And that presents a problem for employers. Maybe the spouses will look for individual coverage, but at age 55 or 60, possibly with pre-existing conditions, the chances of their finding affordable non-group coverage that will accept them are not good.

That means they will opt for COBRA continuation in droves and keep it for as long as they can—usually 18 months, but 36 months for people whose spouses become eligible for Medicare. The result of this will be that for three years, employers will carry people who are expensive to cover, but the most employers can charge these spouses is the average cost of a premium plus a 2 percent administrative fee.

Plus, companies’ administrative costs will be high as the older spouse retires—maybe the couple moves to a different state, maybe they become snow birds. Keeping track of their whereabouts for three years will be a challenge.

Once COBRA runs out, these spouses will look again for individual coverage. But now they are three years older. Federal health laws, in particular HIPAA, are supposed to guarantee acceptance in the individual market once people have depleted their ability to continue employer-sponsored coverage. But even if they can get the coverage, it will be more expensive—because employers subsidize the cost of COBRA premiums—and the benefits will not be as good.

This is when things get interesting—and dangerous—for you employers. Suddenly there are millions of aging spouses who are terminated from your benefit plans simply because the clock ran out. They can’t find good health insurance at a reasonable price at the very time they need it most. Their retired spouses are pushing 70 and on a fixed income. These folks will be unhappy and scared. They will demand relief from Congress. Congress could do one of two things:

First, it could allow the spouse of someone on Medicare to buy into the program. There have already been a number of proposals to allow people age 55 and up to buy Medicare coverage. The problem is that Medicare will already be bursting at the seams trying to accommodate the doubling number of beneficiaries. Already, Medicare is threatening to bust the federal budget. Congress is unlikely to risk insolvency by bringing in millions more people 10 years before they normally would be eligible.

More likely, Congress will look at the problem and decide to fix it at no cost to the taxpayers. It will be easy to do. These folks are already on COBRA, so why not just extend their COBRA eligibility? Let them stay on COBRA until they are eligible for Medicare, however long that might be.

But the older spouse might have married someone 10 or 20 years younger. They might have dependent children. Would all of these people continue your benefit program until the younger one reaches 65? Sure. Why not? Congress seems to think employers are rolling in money. You can afford it.

Now, this situation would be easy to solve if your workers already had non-group coverage. As the husband goes on Medicare, they just drop him from the policy and the wife goes on exactly as before, but paying a smaller premium because the husband is no longer covered.

The problem only comes in mixing an employer-sponsored group plan that includes dependent coverage with a government program that is keyed to birth date. If the worker is retired and no longer eligible for the group plan, what happens to the dependents?

If you act soon enough you could avoid this looming problem by converting your workers to non-group coverage now. You may still be able to help pay for that coverage through ahealth reimbursement account. If you act early, your employees could be young and healthy enough to qualify for favorable non-group premiums that might actually save you money, depending on the state in which you are located.

Other than that, the options are few. Get ready for endless COBRA enrollment.